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Atlantic Council

AFRICA CENTER

ISSUE BRIEF Sudan


Prospects for Economic
Re-engagement
MARCH 2018 JEFFREY HERBST

Following sustained progress on


a “five-track” engagement plan,
on October 12, 2017, US President
Donald Trump permanently lifted significant and long-standing economic
sanctions on Sudan. The Atlantic Council’s Sudan Task Force applauds US
efforts to promote positive domestic changes in Sudan, while recognizing
the obstacles to full normalization that exist. The reforms necessary to
drive real change—improvements in governance, rule of law, human rights,
and political participation—are well known and must remain a centerpiece
of US-Sudan engagement; they should not take a back seat to narrow
counterterrorism concerns. But administration officials would be prudent
to also consider Sudan’s strategic relevance in a wider regional and global
context. Failing to seize the opportunity at hand could risk pushing Sudan
into the arms of global competitors.

To advance the dialogue on the US-Sudanese relationship in a way that


could benefit both Americans and Sudanese, task-force members traveled
to Sudan in January 2018—the third delegation in two years—to research
three critical topics: governance and political reform; economic reform
and impediments to investment; and prospects for greater US cultural
engagement. While in Khartoum and in the Darfur region, the group
sought out a diverse range of perspectives, speaking to government, civil
society, business, youth, and artistic communities. That trip formed the
basis of three issue briefs: “Sudan: Politics, Engagement, and Reform,”
“Sudan: Prospects for Economic Re-engagement,” and “Sudan: Soft Power,
Cultural Engagement, and National Security.” Each brief proposes concrete
measures that the US and Sudanese governments should undertake to
continue advancing the bilateral relationship and to maintain momentum on
addressing longstanding issues of mutual concern.

T
he United States has been sanctioning Sudan for almost thirty
years. As required by law, the United States first curtailed
assistance after the Sudanese military, led by then-Colonel Omar
Hassan al-Bashir, overthrew the elected government of Sadiq
The Atlantic Council’s Africa al-Mahdi in 1989. Sanctions intensified with the designation of Sudan as
Center promotes dynamic a State Sponsor of Terrorism (SST) in 1993. Subsequent sanctions were
geopolitical partnerships with
imposed by the president and by Congress, due to concerns about
African states and redirects US
and European policy priorities terrorism, the war in what is now South Sudan, the conflict in Darfur,
towards strengthening security and default on loans.
and promoting economic
growth and prosperity on the The October 2017 decision by the Donald Trump administration to
continent. eliminate many—but by no means all—of the sanctions opens up the
possibility of a new era of US cooperation with Sudan, which will allow
ISSU E B RIEF Sudan: Prospects for Economic Re-engagement ISSU E B RIEF Sudan: Prospects for Economic Re-engagement

Washington to credibly push for economic reforms and Throughout, this paper argues that, while a great many Figure 1. GDP per capita
About the Sudan Task Force engagement as a partner that has more than just sticks Sudanese believe that the lifting of US sanctions will be (in constant 2011 dollars)
to offer. Changes in Sudanese government policies sufficient for the economy to improve, the elimination
and practices, albeit difficult, have the potential to of these punitive measures is only one necessary step. 5,000
The Sudan Task Force—co-chaired by Atlantic restart the economy and improve social services in Real economic progress will depend on fundamental
Council Vice President and Africa Center Director Dr. one of Africa’s largest countries, to the benefit of the changes—including sharply reducing subsidies, 4,000
J. Peter Pham and Atlantic Council Board Director
Sudanese population and, potentially, of US business. devaluing the currency, reigning in corruption,
Ambassador (ret.) Mary Carlin Yates, former special 3,000
It is particularly important that the United States act restraining government intervention in the economy,
assistant to the president and senior director for
African affairs at the National Security Council, as well now, because other countries—including China, Russia, and directing resources away from the security sector
and Turkey—have continued to engage and invest in and toward poverty reduction—that threaten policies 2,000 Sudan
as chargé d’affaires of the US embassy in Sudan—
proposes a rethink of the US-Sudan relationship to Khartoum, without the human rights or governance and attitudes that have become deeply ingrained Sub-Saharan Africa
priorities that successive US administrations have in the Sudanese government during its nearly thirty 1,000
better serve US interests and to improve the lives of
those in Sudan, both goals that task-force members endorsed. years of rule. Of course, these economic benchmarks
believe to be mutually reinforcing. The task force are closely related to, and assume continued progress 0
also includes: Ambassador (ret.) Timothy Carney, 95 00 05 10 15
on, issues of politics and governance, which are part 19 20 20 20 20
the last senate-confirmed US ambassador to Sudan; Khartoum, simply put, of current US-Sudan negotiations.1 Khartoum, simply
Ambassador (ret.) Johnnie Carson, former US
assistant secretary of state for African affairs and must stop sanctioning put, must stop sanctioning its own economy if the
potential of the country—including the resumption of
Calculated from: World Bank, “Databank: World Development
Indicators,” http://databank.worldbank.org/data/reports.aspx?-

its own economy if the


source=world-development-indicators.
ambassador to Kenya, Zimbabwe, and Uganda; Dr.
US trade, investment, and development assistance—is
Jeffrey Herbst, expert on African political economy
and former CEO of the Newseum; Cameron Hudson,
former chief of staff to the US special envoy for
potential of the country . . . to be realized. countries in terms of the private sector’s ability to
operate, as measured by how easy it is to start a firm,
Sudan and South Sudan; Ambassador (ret.) Princeton is to be realized. Sudan’s Political Economy
of Mismanagement
obtain electricity, and secure credit, among other
indicators. 5
Lyman, former US special envoy for Sudan and
South Sudan and assistant secretary of state for The government of President Bashir is authoritarian,
international organizations; and Zach Vertin, visiting At the same time, the Sudanese economy has reached While comparative rankings always have their own
often brutal, and highly corrupt. In Freedom House’s
lecturer at Princeton University and former director of a point where it desperately needs a more normal issues, and inevitably appear to be misleadingly
2018 Freedom in the World report, which evaluates
policy for the US special envoy for Sudan and South economic relationship with Washington. For many precise, interviews conducted by the task force while
political rights and civil liberties in 195 countries,
Sudan. Kelsey Lilley, associate director of the Atlantic years, US sanctions did not have a significant economic in Khartoum in January 2018 affirm the statistical
Sudan was ranked among the dozen least-free
Council’s Africa Center, is the task-force coordinator. effect on Sudan, although they did come to define findings. “Government does not listen to the private
states in the world. 2 Not surprisingly, its economic
the bilateral political relationship. However, with the sector” is a common lament from businessmen. There
management reflects the nature of the state.
This issue brief is one of a three-part series that secession of South Sudan in 2011, and the accompanying is “no consistency or coherence” to government policy,
continues the work of the task force’s July 2017 report, Transparency International ranks Sudan as the 175th
loss of 75 percent of Sudan’s oil revenue, Khartoum as officials seek to put out one fire or another as they
Sudan: A Strategy for Re-engagement—authored by most-corrupt country in the world, out of 180, noting
became more directly susceptible to Washington’s enrich themselves. There are formal government
Ambassador Yates with Lilley—which detailed the that bribery and fraud seem present in all sectors
actions. In the short term, the Sudanese government bodies dedicated to interacting with the private sector,
costs to both the United States and Sudan of the of the economy. 3 In the Heritage Foundation’s 2018
seeks a resumption of trade, and to develop regular but they are deemed “useless” and “just going through
status quo of strained relations. That report found Index of Economic Freedom, which measures a range
financial relations with US banks that are critical to the the motions” by business leaders, because of the
that the decades-long US policy of isolation toward of government interventions in the economy, Sudan
Sudan had not yielded significant changes in the facilitation of commerce and the use of credit cards. government’s commitment to a command-and-control
is rated 161st out of 180 countries. That report noted
country’s governance, to the detriment of US policy The ultimate prize for Khartoum is desperately needed economy. The Sudanese leadership seems to make no
the pervasiveness of poor governance and inefficient
objectives as well as the Sudanese people. debt relief, an opportunity dependent on Sudan’s effort to explain what it is actually doing or planning.
business regulations, and that little attention is paid
removal from the SST list. Instead, economic policy is based on relationships; as
to property rights.4 Similarly, the World Bank’s Doing
The content and recommendations are the result one businessman wistfully said, “Everyone is corrupt.”6
This paper will first describe the political economy Business 2018 indicators rank Sudan 170th out of 190
of task-force collaboration and represent a
majority consensus among participants. Nothing of Sudan, which shapes Khartoum’s priorities and The Economic Laws of Gravity
implies that the lead authors or every participant affects how it will respond to demands for economic 1 For a detailed look at issues of governance and politics, see Were Temporarily Defied
reform. It will then review the immediate steps that “Sudan: Politics, Engagement, and Reform,” http://www.atlan-
agree unequivocally with every finding and/or ticcouncil.org/publications/issue-briefs/sudan-politics-engage- As Figure 1 indicates, Sudan managed to perform
recommendation. Individuals served in their personal the United States and Sudan can take to improve ment-and-reform. relatively well for some time. The most important factor
capacity.* economic relations, now that most sanctions have 2 Freedom House, Freedom in the World 2018 (Washington, DC: was the possession of oil revenue, which accounted
been eliminated. Finally, the paper will discuss what Freedom House, 2018), https://freedomhouse.org/sites/default/
files/FH_FITW_Report_2018_Final_SinglePage.pdf.
* Participants in the January 2018 delegation traveling to should be done to prepare for Sudan’s removal from
Sudan included Pham, Yates, Carney, Carson, Herbst, Vertin, 3 Transparency International, “Corruption Perception Index 2017,” 5 World Bank, “Sudan,” Doing Business, 2018, http://www.doing-
the SST list. https://www.transparency.org/country/SDN. business.org/data/exploreeconomies/sudan.
and Lilley. Their work was augmented by the expertise and
insights of the wider US-based task force. 4 Heritage Foundation, “Sudan,” 2018 Index of Economic Freedom, 6 All quotes from task-force interviews with business leaders in
https://www.heritage.org/index/country/sudan. Khartoum, January 2018.

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ISSU E B RIEF Sudan: Prospects for Economic Re-engagement ISSU E B RIEF Sudan: Prospects for Economic Re-engagement

Figure 2. Composition of Sudanese Debt Sudan’s list of creditors is extensive (see figure 2). The
industrialized countries that make up the Paris Club
Foreign Suppliers are owed about 31 percent of the debt.10 An even more
5% Multilaterals significant amount of money is owed to non-Paris Club
12% creditors, including Saudi Arabia and Kuwait. While
Commercial Banks
13% debt to the United States is not a large portion of
the total debt owed, little progress can be made on
resolving any of the long list of obligations until there is
a full normalization of relations with Washington.

In 2012, the governments of Sudan and South Sudan


agreed to the so-called “zero option,” by which Sudan
Paris Club retained all debt after the secession of South Sudan,
31% provided that it was given firm commitments of debt
relief by the international community within two years.
Non-Paris Club That agreement lapsed in 2016, but was extended to
39% September 2018. Formally, if no agreement with the
international community is developed, the debt should
be apportioned with South Sudan, based on a formula
Source: Central Bank of Sudan, “Sudan: Structure of External Debt
and Debt Relief Efforts,” January 2018, provided to task force in to be agreed upon by both countries.11 Of course, given
Khartoum. the fighting that has occurred since its independence
and its own profound economic problems, South
for two-thirds of exports and half of fiscal revenue Sudan is in no position to take on legacy debt.
before the secession of South Sudan.7 Especially
during the commodities “supercycle” between 2000 Finally, the Khartoum leadership managed to
and 2014, when prices were high, petroleum allowed survive, and to continue to enrich itself, by shifting
the economy to grow—at least as measured by the economic costs of its policies onto the general
Sudan’s capital Khartoum is strategically located along the Nile River. Photo credit: Christopher Michel.
macroeconomic aggregates—and for the government population. For instance, perhaps as much of 75
to receive significant, and for many years increasing, percent of the budget is devoted to national security
and defense.12 Bashir has defended this allocation, Human Development Index, which measures a before 2008—has now slowed to a trickle. The state
revenue, despite sanctions and poor economic
saying in 2015, “To those voices that speak in the variety of social achievements in health, education, has still not fully adjusted to the shock of secession,
management.
street or in the media about the armed forces budget, and standard of living.14 This ranking is twenty-two which, while profound, was also predictable, given
Sudan also postponed the day of reckoning somewhat I say that if 100 per cent of the state’s budget was places lower than Sudan’s place in the Gross National that the Naivasha Agreement that set South Sudanese
by not paying its debt. Sudan now has a crushing allocated to the army to secure the country then Income table, one of the larger disparities between independence in motion was signed in 2005. Tellingly,
external debt of $45 billion, of which 87 percent is in that would still not be enough.” 13 Over the long term, the wealth of a country and how well its population is the total tax revenue that Sudan is able to capture
arrears. There is no chance of Sudan paying off even the neglect of the social sector has had a profound doing. Similarly, road conditions are “patchy at best,” today is only 5.3 percent of gross domestic product
a fraction of these liabilities, given the size of its post- impact on the population of Sudan. For instance, especially outside the major arteries, and the general (GDP), compared to an average of 16.8 percent for
secession economy. Government debt is the largest Sudan is ranked 165th (out of 188 countries) in the infrastructure serving the population is poor.15 sub-Saharan Africa and 12.7 percent for the Middle
component of what is owed, followed by debt owed United Nations Development Programme’s 2016 East and Central Asia.16 The state and those who live
by the Central Bank of Sudan and public corporations. 8 The Economy Comes Back to Earth off of it are essentially being starved for funds.
Overall, public and publicly guaranteed debts represent However, the house of cards that is the Sudanese
10 The Paris Club is a twenty-two-member body of creditors that At the same time, the sanctions that the United States
95 percent of the country’s debt stock.9 includes the United States, United Kingdom, France, Japan, and
economy under Bashir and the National Congress Party
imposed began to have more of a bite. Most notably,
Russia. is now crumbling. Perhaps most important has been
the Barack Obama administration’s June 2014 fine of
11 International Monetary Fund, “Staff Report for the 2017 Article IV the secession of South Sudan in 2011, which, as noted
Consultation,” p. 3. $8.9 billion against the French bank BNP Paribas for
above, caused the loss of most of Sudan’s oil revenue,
7 International Monetary Fund, “Staff Report for the 2017 Article IV 12 John Hursh, “Since Removal of Sanctions, Sudan’s Economy has violating US sanctions against Sudan, Cuba, and Iran—
Consultation—Debt Sustainability Analysis,” provided to the task and half of government earnings. Accordingly, foreign
Actually Got Worse,” African Arguments, December 18, 2017, along with a general increase of banking regulations
force in Khartoum, November 13, 2017, p. 1. http://africanarguments.org/2017/12/18/since-the-removal-of- direct investment—overwhelmingly in the hydrocarbon
8 Central Bank of Sudan, “Fact Sheet on Sudan’s External Debt,” sanctions-sudans-economy-has-actually-got-worse/. sector, which had been several billion dollars per year
External Debt Unit, provided to the task force in Khartoum, 13 Quoted by Elfadil Elsharief Elhashmi, The Politics of Mining and
January 2018, p. 1. Trading of Gold in Sudan: Challenges of Corruption and Lack of 16 International Monetary Fund, Sudan: 2017 Article IV Consulta-
9 Central Bank of Sudan, “Sudan: Structure of External Debt and Transparency (Kampala, Uganda: Sudan Democracy First Group), tion (Washington, DC: IMF, 2017), p. 12, https://www.imf.org/en/
14 United Nations Development Programme, “Human Development Publications/CR/Issues/2017/12/11/Sudan-2017-Article-IV-Consul-
Debt Relief Efforts,” provided to the task force in Khartoum, November 15, 2017, p. 13, http://www.democracyfirstgroup.org/
Index,” http://hdr.undp.org/en/composite/HDI. tation-Press-Release-Staff-Report-and-Statement-by-the-Execu-
January 2018, p. 2. sudangold.
15 Bank of Khartoum, “Financial Institutions,” 2018. tive-45456.

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Should the economic Other avenues of support also appear to have


diminished. Remittances, largely from Sudanese
there is every indication that gold revenues will feed the
country’s endemic corruption. If the economy became
protests were easily contained, and the journalists who
reported on them arrested, government no doubt took
environment improve, working in the Gulf, were estimated as high as $3 billion less distorted and the government less corrupt, Sudan notice of how price changes can incite unrest. Finally,

Sudan actually has more in 2011. However, these flows appear to have dropped
to around $400 million in 2015, due—at least in part—
could benefit greatly from the gold boom. The country
also has significant potential in agriculture (e.g., it is
reducing support for the security services is obviously
a very difficult challenge for any state elite during a
possibilities for growth to the difference between the official and black-market
currency rates.18 The Gulf states also provided funds of
the largest producer of gum arabic in the world, the
fourth-largest exporter of peanuts, and the fifth-
time of economic tumult.

than many African perhaps $2 billion to Sudan in 2015 and 2016 combined, largest producer of sorghum) and livestock (fifth- Especially daunting is that the private sector and the

economies. . . partially in order to woo Khartoum from Iran’s orbit,


and to encourage it to become involved in the war
largest sheep population, and seventh-largest cattle
stock). There is also the possibility of additional oil and
general population actually require much more from
the government than the admittedly difficult price
in Yemen.19 However, assistance from the Gulf states gas production from fields within Sudan, significant changes and devaluations that have already occurred.
after the 2007 recession and previous sanctions— appears to have diminished, and it is not clear if Sudan hydroelectric capacity, and underused water resources Most importantly, sharp reductions in corruption
caused all US banks, and many worldwide, to end can count on funds of a similar magnitude in the future. from the Nile. 21 The Sudanese rightfully claim that their and regulation are needed. Business also needs a
their correspondence relationship with Sudanese country has more potential than Ethiopia, currently government with a consistent and credible pro-market
financial institutions. As a result, Sudan has not had a The accumulated weight of all these reversals has one of the star economic performers in Africa. stance, and with the ability to explain what it plans to
financial counterpart in the United States that can clear made the situation facing the leadership precarious. do over a long period of time. For social welfare to
dollar transactions, and few banks anywhere in the Accordingly, in the Fund for Peace’s 2017 Fragile State Thus, for both bad and good reasons, Sudan is taking improve—or at least hold stable during a time of severe
world that will process transactions in any currency.17 Index, Sudan is listed as the fifth-most-fragile state some important steps to reform the economy. The economic disruption—government spending must be
This has effectively meant that Sudan is financially in the world (out of 178). It is tied with Syria, and just 2018 budget eliminated the wheat subsidy, saving the reallocated toward health and education, and away
estranged from the rest of the world. For instance, better off than Yemen. 20 government considerable money, but doubling the price from security.
Sudan appears to be the largest country in the world of bread overnight. The currency was also massively
Political Economy of Reform devalued, from 6.7 Sudanese pounds (SDG) to the Thus reform, especially in the short term, may reduce
where no international credit cards can be used. As a
dollar to 18 in December 2017, and then the rate banks support for the government, because even moderate
result, many large transactions are still done in cash, an Sudan’s rulers need economic reform, as the underlying
receive was raised to 28 SDG to the dollar in February changes are a bitter pill for those who were allied with
arrangement that deters businesses and tourists from rot of the economy, long masked by oil revenues, is now
2018. The latter move was a further devaluation but the leadership. However, policy changes will not provide
coming to the country. threatening the continual enrichment of the leadership
also seemed to endorse the continuation of multiple the leadership with many new allies immediately,
and the generous funding of the security establishment
Although the relevant sanctions were lifted in October exchange rates. The unofficial rate was in the mid- to because new constituencies will require much more to
that keeps the elite in power. It must eliminate the
2017, no US bank has expressed a willingness to process high-thirties (as of February 2018), suggesting that be done before they can offer real support.
subsidies that drain the government budget, and unify
Sudanese transactions. Banks appear unenthusiastic the exchange rates that are distorting the economy, and government has gone some, but by no means all, of
The delicate dance of reform is being conducted in a
about re-engaging with Sudan as long as it appears on which also cost the government dearly. The leadership the way to eliminating exchange-rate distortions.
political environment where there has been almost no
the SST list. In addition, there may be some tendency is also desperately in need of more revenue to feed its
The relatively positive scenario for Sudan is that the debate about economic (or any other) issues for almost
toward overcompliance, especially after the large fines patron-client networks.
elite’s own survival-based motivation to reform is thirty years. The authoritarian nature of the state has
that the Obama administration leveled. There is also the
sufficiently aligned with what the private sector needs: caused politics to be essentially frozen. Members of
possibility of reputational risk in dealing with a country Reform is also necessary to restart economic
a government that can become a more constructive civil society report that politics is not about ideas—
whose leader is under indictment for genocide by the activity. The private sector suffers from government
force for economic dynamism than has been the certainly not about thoughts that would influence
International Criminal Court, given that Darfur—at least intervention, in terms of the exchange rate and the
case in the past. However, real reform will severely economic policy—but, rather, revolves around a more
for some time—became a cause célèbre in the United state’s failure to invest in the economy. Should the
curtail long-term corrupt relationships, privileges, and base struggle for power among competing elites.
States. Finally, given the size of the Sudanese economy economic environment improve, Sudan actually has
access enjoyed by the government’s supporters. For Elections have largely been a sham. As a result, Sudan
and its prospects, there may be no compelling business more possibilities for growth than many African
instance, the multi-tier exchange that the government has a political climate where government (as well as
reason for banks to overcome the inertia of the past economies, and some opportunities that could be of
has developed in response to the currency’s other elites) can only guess at the consequences of
and take a risk on compliance and reputational issues. interest to US investors. Gold production is increasing,
overvaluation is a prescription for patronage, since its decisions, making any kind of reform calculation
While Sudanese officials believe that transactions could and Sudan could be the largest African producer soon.
the state can determine who has access to dollars. particularly difficult, and probably pushing the
be restarted if senior US officials made a few telephone Unfortunately, given current government practices,
Ending it will, by necessity, hurt those with access to government toward a relatively conservative position
calls to the banks, the financial institutions seem to be
the state. Cutting the subsidies, which have bought a when evaluating economic changes.
making a series of business calculations that will not be
18 “Sharp Drop in Sudanese Remittances, Economist,” Dabanga, certain amount of popular support—even though they
altered immediately. February 26, 2015, https://www.dabangasudan.org/en/all-news/ Because the reform process is being driven by a set
article/sharp-drop-in-sudanese-remittances-economist. are a very inefficient way of helping the poor—will also
of extremely difficult tactical calculations made by
19 Giorgio Cafiero, “Sudan Gets $2.2B for Joining Saudi Arabia, challenge the regime. In January 2018, several thousand
a longstanding regime desperate for survival, rather
Qatar in Yemen War,” Al-Monitor, November 23, 2016, https:// people protested against the new budget. While these
17 While the US sanctions and fines should only have affected US www.al-monitor.com/pulse/originals/2015/11/sudan-saudi-ara- than a change in the beliefs of government leaders
banks, it appears that banks worldwide are waiting for an Ameri- bia-war-yemen-houthi-economy.html. or the advent of new government leadership, it will
can institution to begin to clear Sudanese transactions, so as not 20 Fund for Peace, “Fragile States Index,” 2018, www.Fundforpeace. 21 Statistics from Bank of Khartoum and task-force interviews with inevitably be ad hoc and disappointing. Or, as one
to risk running afoul of US authorities. org/fsi/country-data. Sudanese government officials, January 2018.

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ISSU E B RIEF Sudan: Prospects for Economic Re-engagement ISSU E B RIEF Sudan: Prospects for Economic Re-engagement

Sudanese said, “We will reform in our own ham-


handed and inefficient way.”
Not least among the rewards for improved governance
is a better listing on the rankings that have developed
relief, working with the IMF to establish “a track record
of sound macro policies,” and limiting new borrowing The Sudanese government
Promoting Economic Engagement:
to compare countries worldwide—and which, as
noted above, consistently give Sudan a low score.
on nonconcessional terms. 24 The IMF does not seem to
have illusions about policy implementation in Khartoum.
must begin a process of
Immediate Steps Improvement is not a guarantee of increased trade and For instance, regarding past surveillance, it notes that strategic planning for a
The political economy of reform in Sudan must serve
as the context in which demands are made on the
investment, but these indicators are important signals
that companies monitor to see if the business climate
“progress since [2016] has been mixed,” crediting the
government for partial currency devaluation and a
future with far more limited
government and, critically, for how proposed reforms is changing. reduction in energy subsidies in late 2016, but noting hydrocarbon revenue.
are designed and evaluated. There are certainly steps that the fiscal deficit continued to increase. 25
Sudan should begin planning for debt relief through
that can be taken now, given that many US sanctions institutions should begin work on how they can support
the highly indebted poor countries (HIPC) process, Finally, the interim poverty-reduction strategy paper,
have been dropped, and a delisting of Sudan from the a Sudanese safety net. The flip side of demanding
so that it can get to what is commonly known as the developed in 2012, is clearly out of date. 26 Given the
SST list is anticipated. reforms is being conscious of their inevitable costs and
HIPC decision point, the position where it can be trauma that further cuts in subsidies and devaluation
considered for full debt relief. According to the IMF, will cause, Khartoum must be strongly encouraged to trying, as much as possible, to alleviate the burden on
The Sudanese government must reduce distortions in
getting to the decision point will require that Sudan: develop a new and firm poverty-reduction strategy to the very poor. This is not only appropriate policy, but
the economy. The International Monetary Fund (IMF)
be funded, at least in part, by reallocations away from good politics; it will signal to the Sudanese that US
has established a clear set of necessary reforms for
“1) Be eligible to borrow from the World Bank’s defense and security. How the government would policy is not just about sticks.
economic stabilization and, eventually, debt relief. No
International Development Agency, which actually formulate a permanent plan through broad-
concessions should be made, given the government’s Limited US resources will inevitably affect the ability
provides interest-free loans and grants to the gauged participation is exceptionally unclear, as it has
likely desire to want to do as little as possible. to support such a large-scale project. As a result,
world’s poorest countries, and from the IMF’s devoted considerable energy over the years to limiting
Poverty Reduction and Growth Trust, which Sudanese nongovernmental organizations (NGOs)
Many government and business leaders in Khartoum public discussion.
provides loans to low-income countries at and the Sudan business community may offer the
feel that many, if not all, of their problems will disappear
subsidized rates; The Sudanese government must begin a process of best prospects for building a national safety net. The
when sanctions are finally lifted. They are confused
strategic planning for a future with far more limited need is already real, with one NGO telling the task
as to why there was not an immediate improvement
2) Face an unsustainable debt burden that hydrocarbon revenue. Current reforms are ad hoc— force that more than 250,000 schoolchildren do not
after the United States eliminated most sanctions in
cannot be addressed through traditional debt or at least government has not explained them—and have enough money to afford breakfast. That NGO is
October 2017. In fact, many businesspeople argue that
relief mechanisms; the recently announced devaluation and subsidy planning to produce packaged meals on a large scale,
Sudan currently faces the worst economic climate in
reductions do not address efforts needed in significant subject to funding. The business community could
a generation. While lifting sanctions will undoubtedly 3) Have established a track record of reform
sectors, such as tourism. Communication on the desired receive funding from the multilateral institutions to
make trade easier, the Sudanese government, and sound policies through  IMF- and World
path of the economy is absolutely critical, because help create a safety net, whereas the government, due
companies, and civil society must understand that, Bank–supported programs; and
the early days will be difficult. The political challenge to debt, may not. Funding either NGOs or business-
no matter what the United States does, the economy
caused by the quick emergence of a large number created assistance entities would require due diligence
will not improve much unless Khartoum fundamentally 4) Have developed a  Poverty Reduction
who have lost out, but the surfacing of those who have and, especially, accountability through regular audits.
reforms its economy with measures that go far beyond Strategy Paper (PRSP) through a broad-based
subsidies and devaluation. The medicine necessary to participatory process in the country.”22 benefitted from reforms only in the medium term, can
The US government should make it clear that there
begin ridding Sudan of its many economic pathologies be alleviated if the government tries to explain what it
is now no legal obstacle to clearing Sudanese
will cause considerable pain, and it is highly likely that Of these four points, the first will probably be resolved is doing, and how the population as a whole will benefit
transactions. With the lifting of sanctions in October,
things will continue to get worse before they improve. simultaneously with debt relief, once Sudan clears its over the long term. Obviously, such efforts dovetail
American banks are free to clear Sudanese transactions.
arrears. Everyone certainly agrees that Sudan has an with the immediate need to create a safety net for the
The banks, and their law firms, seem to understand that
Sudanese should know that American companies unsustainable debt burden. vulnerable.
Sudanese transactions are no longer off limits, but an
will undoubtedly take a wait-and-see attitude toward
The Sudanese believe that they have established a good The US government should be publicly supportive occasional reiteration by US officials would be helpful.
Sudan. While there was a Corporate Council of
working relationship with the IMF and the World Bank of the economic reform measures proposed by the The Sudanese should recognize that the clearance
Africa trade mission to Sudan in December 2017,
through recent reforms. 23 However, there is probably IMF, and demand that all the necessary price changes issue, far from being a leftover of past US actions, is
foreign investors seem, at best, to have moved from
a considerable amount of work left to do, including be made as quickly as possible. In turn, the United a reflection of how dimly banks view their prospects,
uninterested to intrigued. At the moment, there is no
increasing efforts to garner broad support for debt States, other donors, and the international financial and of how much needs to be done domestically before
compelling need for companies to invest in Sudan, and
reintegrating into the world economy.
its business climate and government practices provide
numerous reasons to avoid the country. There is the 22 International Monetary Fund, “Debt Relief Under the Heav- 24 International Monetary Fund, “Sudan Staff Report for the 2017 The United States should also, as noted in “Sudan:
potential for further hydrocarbon investment, but even ily Indebted Poor Countries (HIPC) Initiative,” Novem- Article IV Consultation,” November 13, 2017, p. 10, http://www.imf. Politics, Engagement, and Reform,” work through
org/~/media/Files/Publications/CR/2017/cr17364.ashx.
the remaining and yet-to-be-confirmed Sudanese ber 3, 2017, https://www.imf.org/en/About/Factsheets/
the Departments of State and Commerce and
Sheets/2016/08/01/16/11/Debt-Relief-Under-the-Heavily-Indebt- 25 International Monetary Fund, Sudan: 2017 Article IV Consultation,
reserves combined are probably not large enough to ed-Poor-Countries-Initiative. p. 2. the Overseas Private Investment Corporation to
quickly attract investors who will chose to ignore all of 23 Central Bank of Sudan, “Sudan: Structure of External Debt,” 26 International Monetary Fund, Sudan: Interim Poverty Reduction organize—in conjunction with the Corporate Council
Sudan’s problems. pp. 3-4. Strategy Paper (Washington, DC: International Monetary Fund, on Africa and the US Chamber of Commerce—several
2013), https://www.imf.org/external/pubs/ft/scr/2013/cr13318.pdf.

8 ATLANTIC COUNCIL ATLANTIC COUNCIL 9


ISSU E B RIEF Sudan: Prospects for Economic Re-engagement

Atlantic Council Board of Directors


information and investment seminars on trade and strategy, in return for the long-awaited debt relief. It is
investment opportunities in Sudan. These seminars highly likely that government efforts will not be linear, INTERIM CHAIRMAN Richard R. Burt Sean Kevelighan Kris Singh
should be organized in conjunction with the Sudanese given the leadership’s mixed motivations. *James L. Jones, Jr. Michael Calvey *Zalmay M. Khalilzad James G. Stavridis
business community and the Sudanese Ministry
The United States should reinstitute normal economic James E. Cartwright Robert M. Kimmitt Richard J.A. Steele
of Commerce. These gatherings will not generate CHAIRMAN EMERITUS,
relations, including development assistance, and INTERNATIONAL John E. Chapoton Henry A. Kissinger Paula Stern
investment directly, as companies are more than
encourage the multilateral institutions to re-engage. ADVISORY BOARD Ahmed Charai Franklin D. Kramer Robert J. Stevens
capable of determining where they should allocate
Brent Scowcroft Melanie Chen Laura Lane Robert L. Stout, Jr.
their capital. Their real value, given the history of
sanctions spanning decades, is in the signaling by Limits of Reform and Limits of US Influence Michael Chertoff Richard L. Lawson *Ellen O. Tauscher
CHAIRMAN,
the US government to investors that they should feel This paper has repeatedly noted that the lifting of INTERNATIONAL George Chopivsky *Jan M. Lodal Nathan D. Tibbits
comfortable going into Sudan if they have a viable sanctions, and the eventual provision of debt relief, ADVISORY BOARD Wesley K. Clark *Jane Holl Lute Frances M. Townsend
business opportunity. will probably disappoint Sudanese looking for an David McCormick David W. Craig William J. Lynn Clyde C. Tuggle
immediate and dramatic economic revival. While US *Ralph D. Crosby, Jr. Wendy W. Makins Melanne Verveer
PRESIDENT AND CEO
Finally, the US government should begin to explore sanctions have been economically consequential in Nelson W. Cunningham Zaza Mamulaishvili Charles F. Wald
how economic assistance might be restarted. *Frederick Kempe
recent years, growth is ultimately held back by the Ivo H. Daalder Mian M. Mansha Michael F. Walsh
Currently, the United States is limited by law in the practices and attitudes of the Sudanese government. EXECUTIVE VICE CHAIRS *Ankit N. Desai Gerardo Mato Maciej Witucki
kinds of assistance it can provide to Sudan. At the very Especially as reforms are likely to be tactical, grudging, *Adrienne Arsht *Paula J. Dobriansky William E. Mayer Neal S. Wolin
least, planning should begin for a time when Sudan will and somewhat confusing, the immediate economic *Stephen J. Hadley Christopher J. Dodd T. Allan McArtor Guang Yang
be off the SST list. benefits of Khartoum coming in from the cold are likely Conrado Dornier Timothy McBride Mary C. Yates
VICE CHAIRS
to be more limited than many in Sudan expect. *Robert J. Abernethy Thomas J. Egan, Jr. John M. McHugh Dov S. Zakheim
Promoting Economic Engagement: *Stuart E. Eizenstat Eric D.K. Melby
*Richard W. Edelman
Future Steps Khartoum must shoulder responsibility for the reform
Thomas R. Eldridge Franklin C. Miller
HONORARY DIRECTORS
efforts. But, as this paper and the other task-force *C. Boyden Gray David C. Acheson
The next set of efforts will require that Sudan come off Julie Finley Judith A. Miller
reports have noted, there is much that the United *George Lund Madeleine K. Albright
the SST list. This will not be determined by economic
States can do to encourage reform, and to pave *Virginia A. Mulberger *Alan H. Fleischmann *Alexander V. Mirtchev James A. Baker, III
issues, but there will be numerous implications for the
the way so that tough reform decisions are more *W. DeVier Pierson Ronald M. Freeman Susan Molinari Harold Brown
economy.
likely to be rewarded by economic acceleration. *John J. Studzinski Courtney Geduldig Michael J. Morell Frank C. Carlucci, III
Once Sudan is off the list, efforts should be made by Fostering normal economic relations after decades of *Robert S. Gelbard Richard Morningstar Ashton B. Carter
TREASURER
the Sudanese government to complete the debt-relief estrangement will be difficult for both governments. Gianni Di Giovanni Edward J. Newberry Robert M. Gates
*Brian C. McK. Henderson
process. According to the IMF, this will require: However, since attempts at isolating Sudan have not Thomas H. Glocer Thomas R. Nides Michael G. Mullen
proven satisfactory, both countries should seize this SECRETARY Murathan Gunal Franco Nuschese Leon E. Panetta
1. Establishing a further track record of good opportunity to finally garner the gains from trade and *Walter B. Slocombe *Sherri W. Goodman Joseph S. Nye William J. Perry
performance under programs supported by loans investment that have been the spark for development Amir A. Handjani Hilda Ochoa-Brillembourg
from the IMF and the World Bank
DIRECTORS Colin L. Powell
in so many other countries. The benefit in the long Stéphane Abrial John D. Harris, II Ahmet M. Oren Condoleezza Rice
term—to both governments and their citizens— Frank Haun Sally A. Painter
2. Satisfactorily implementing key reforms agreed to Odeh Aburdene George P. Shultz
of one of the largest African countries in a critical Michael V. Hayden *Ana I. Palacio
at the decision point *Peter Ackerman Horst Teltschik
geopolitical position, developing and engaged with Annette Heuser Carlos Pascual
Timothy D. Adams John W. Warner
3. Adopting and implementing its PRSP for at least the international economy, is too great to ignore. Amos Hochstein Alan Pellegrini
Bertrand-Marc Allen William H. Webster
one year27 *Michael Andersson Ed Holland David H. Petraeus
Dr. Jeffrey Herbst is a member of the Sudan Task Force *Karl V. Hopkins Thomas R. Pickering *Executive Committee Members
These points are clear, and the United States should and a senior fellow at the Brenthurst Foundation.  He was David D. Aufhauser
Matthew C. Bernstein Robert D. Hormats Daniel B. Poneman
continue to pressure Khartoum to implement its formerly CEO of the Newseum. List as of March 1, 2018
*Rafic A. Bizri Miroslav Hornak Arnold L. Punaro
promised economic reforms and poverty-reduction
Acknowledgements: The author is grateful to the many Dennis C. Blair Mary L. Howell Robert Rangel
people, both in Sudan and the United States, who shared Thomas L. Blair Wolfgang F. Ischinger Thomas J. Ridge
their time, knowledge, and wisdom for this project. Deborah Lee James Charles O. Rossotti
27 International Monetary Fund, “Debt Relief Under the Heavily Philip M. Breedlove
Indebted Poor Countries (HIPC) Initiative,” p. 1.
Reuben E. Brigety II Reuben Jeffery, III Robert O. Rowland
Myron Brilliant Joia M. Johnson Harry Sachinis
*Esther Brimmer Stephen R. Kappes Rajiv Shah
Reza Bundy *Maria Pica Karp Stephen Shapiro
R. Nicholas Burns Andre Kelleners Wendy Sherman

10 ATLANTIC COUNCIL
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